We have been following the New Zealand FATCA IGA developments via several IBS threads. Many of these are listed here for your historical reference.

Much of the information has been provided to us by Kiwi Osgood who comments here on IBS from time to time. We are indebted to him for his dogged pursuit of this issue where FATCA is even less known than it is in America or Canada. Although some Americans must be getting the word, as Phil Hogden reports increased renunciation activity in Auckland.

Osgood has been diligently communicating with the IRD and NZ Revenue Minister, as their ‘FATCA working group’ is doing the negotiation with U.S. Treasury. He has now completed an analysis of the legislation over the Christmas holidays (rotten way to spend a vacation) which will follow after the jump.

In summary he says of the Stealth:

The conclusion is depressing. I think I now see why they are putting the legislation through before the IGA has been signed. The legislation is generic and simply compels NZFIs to comply with “foreign account information sharing agreements”. The contents of those agreements are not considered by the legislation. Essentially the IGAs can be signed by cabinet without further legislation. As the US IGA is still “under negotiation” a casual observer may assume that the contents are still being worked out, but as we know that is not the case. How many people will actually bother to go and look at the Model 1 IGA and look at the detail? It is all quite clever and deceitful.

Read the complete analysis below:

New Zealand has introduced proposed legislation to compel New Zealand Financial Institutions (NZFIs) to comply with an IGA for FATCA. This is unusual as the proposed IGA has not yet been signed, although the legislation assumes that this will occur in the near future.

The legislation has been introduced to the NZ Parliament by the Minister of Revenue on 22 Nov 2013. The Policy and Strategy has been developed by the New Zealand Inland Revenue Department (IRD). The bill had its first reading (debate) on 10 Dec 2013. The bill was referred to a Select Committee for review. Public submissions are invited and are due by 5th February 2014. Submissions can be made online here (click the box “Make an online submission” at the foot of the page).

The legislation is included in an innocuous sounding omnibus tax bill entitled “Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Bill”. The Section dealing with the IGA/FATCA is named “Foreign account information-sharing agreement”. The legislation attempts to make the provisions generic in case future information-sharing agreements are entered into, although the motivation is clearly to change NZ domestic laws to force NZFI to comply with the upcoming FATCA IGA with the US.

At the time of introduction of the bill, the government also released the following documents:

The media statement is of little interest, and the bill and commentary are highly technical. Anyone wishing to read about the provisions in more detail should begin with the RIS.

The RIS essentially describes the analysis that was performed by IRD prior to creating the proposed legislation.

In summary, the RIS assumes that the decision to sign the IGA has already been taken and then examines the options available based on that assumption. The options considered are as follows:

1. Whether to introduce legislation or not (Status quo or Legislation)

2. If legislation is to be introduced, should it be prescriptive (reproduce the IGA in domestic legislation), or broad (refer to the IGA)

Their preferred option is to introduce legislation and that it should be broad. In other words, the legislation will only refer to the IGA, it will not specify the terms in specific legislation.

I have reviewed the RIS and here are the main points that I have noted (in no particular sequence):

1. There has been no public consultation, but “the financial services sector has been actively engaged”, as have other government departments. This has been on-going for over 12 months prior to the introduction of this bill. Not only has the FATCA legislation been “smuggled” into a bill containing unrelated legislation, the period of public consultation is just a few weeks, during which most of New Zealand is on holiday. Clearly the government wants as little visibility of this as possible. (This is how NZ does stealth!)

2. IGA Decision has been made! According to the RIS “The Cabinet decision to enter into IGA negotiations has already been made” and “will be subject to scrutiny in the appropriate manner”, whatever that means. What then, is the point of this public consultation? If an IGA is signed they will obviously need to introduce legislation to override NZ Privacy laws otherwise the NZFI could not comply. That is the primary purpose of the IGA. It is the IGA itself that should be the subject of consultation, not the enabling legislation!

3. No Cost Benefit analysis: They state (point 18) that “Inland Revenue does not consider it is possible to estimate the fiscal costs/benefits of entering into an IGA with the United States”. They also state (on page 1) that “We do however note that the economic costs of not enacting the legislation proposed are unable to be accurately estimated” followed by (also on Page 1) “any fiscal gains from the reciprocal nature of any IGA cannot currently be estimated”.In other words, they have no clue of either the cost or benefit of taking any particular course of action, further stating “it is concluded that the benefits of enacting this legislation greatly outweigh the costs”. On what basis, and who came to this conclusion?

4. Unknown Compliance Costs: It is recognised that there will be “some compliance costs”for NZFI (Page 10, point 34), but these will be “considerably less than they would be if no enabling legislation were introduced”. Really? Why can no firm numbers be put on these costs?

5. IRD Systems Implications: They recognize the “systems implications”for IRD (Page 10, point 35) and that they are preparing a business case for funding “this initiative for consideration by Cabinet”. They estimate a cost of only $5.6-$8.5 million over the entire [life cycle of this agreement]. Considering the costs of issuing guidance, developing new IT systems to cater for receipt and transmission of data, dealing with the inevitable continual change to the regulations, [new administrative staff], this seems ridiculously low.

6. Impairment of Privacy Rights: The agency disclosure statement admits that the proposed option “will impair the privacy rights of the customers concerned” and that “the legislation will enable discrimination against this group”[United States Taxpayers]. Page 6 contains the statement “Domestic legislation can over-ride the Privacy Act, Human Rights Act and New Zealand Bill of Rights Act to the extent it is inconsistent with those acts”. Apparently (Page 1), “the proposals have been discussed with the Office of the Privacy Commissioner and the Ministry of Justice, both of whom understand the need for legislation in this instance”. Is it not an outrage that the government itself is prepared to enact legislation to override these provisions at the behest of a foreign government?

7. No determination of number of Kiwis impacted: There is no reference anywhere to any analysis performed on the number of New Zealanders that will be affected because they are “deemed US Persons”. Why was this not performed to understand the numbers impacted?

8. New Zealand accepts U.S. Citizenship dominance over Kiwi citizens: Following on from similar previous comments made by the Minister and IRD in correspondence, the RIS continues to present the position that the persons affected are “US persons that are also New Zealand residents” or “United States taxpayers that are resident in New Zealand”. There is no acknowledgement that the majority of those affected are New Zealand Citizens; in fact, they refuse to use the term ‘New Zealander’ or ‘New Zealand Citizen’ in any of the documents or correspondence. The presumption of ‘US personhood’ taking priority over New Zealand citizenship status is a gross insult to the persons affected, many of whom may have never even visited the United States.

9. Accepts U.S. taxing ‘Rights and Obligations’: There is some acknowledgement (Page 3, point 7) of the fact that FATCA reporting on New Zealand residents “that have not consistently complied with their United States reporting and payment obligations”may be exposed to “significant tax and penalty charges”. However this is countered by the statement on Page 6: “While the IGA does not alter any substantive taxing rights, it may have the effect of making the IRS aware of existing non-compliance. However, this is consistent with the aims of FATCA“.[Emphasis added]

10. Does NOT quantify tax and penalty charges: No attempt has been made to quantify the “significant tax and penalty charges”that may be imposed and the huge gaps that exist in the Dual Tax Agreement that do not protect New Zealanders from US self-employment taxes, phantom capital gains, the PFIC regime, ObamaCare tax, or any of the other methods used by the U.S. to extract wealth from New Zealanders.

11. Accepts U.S. Sovereign rights on Kiwi soil: The obnoxious statement “New Zealand respects the sovereign rights of the United States to impose taxes and penalties as it sees fit”rears its ugly head again on Page 4, point 8. This really must be strongly challenged. The US does not respect the sovereign right of New Zealand, or any other nation, by imposing FATCA on the rest of the world and ramming IGAs down their throat to help them break their domestic privacy laws. Why then, does New Zealand respect their ‘sovereign right’, particularly when this involves confiscatory taxation policies and effective asset seizure (e.g. FBAR penalties) that could literally bankrupt affected New Zealanders?

12. Classifies FATCA IGA as Double Tax Arrangements: The legislation will classify the IGA as a ‘double tax arrangements’ as the ability for DTAs to override New Zealand privacy and other laws is already enshrined. This is despite the fact that they bear little to no resemblance to DTAs. DTAs are required to be ratified by the NZ parliament, but it seems the IGA itself will not.

13. No provisions for Parliamentary approval of revisions: The legislation will not prevent the IGA from being modified without parliamentary approval, or other IGAs from being introduced without the need for legislative change or parliamentary inspection. Given the way this IGA has been handled without parliamentary oversight, this is highly undesirable.

14. No Advice and Consent: The IGA has been created by US Treasury bureaucrats and will not be subject to Senate “Advice, Consent’ and ratification. It now seems that NZ wishes to take a similar position, in that the IGA will be implemented by Cabinet without being sent to Parliament for scrutiny or debate. Thus, we now have the position where governments are able to make up agreements between themselves without regard to Privacy or Human Rights laws and have those agreements implemented in their respective countries with no consultation process.

15. NZ has swallowed the U.S. Treasury line that this is an reciprocal agreement: Page 8, point 19 refers to the fact that the IGA “is a reciprocal agreement”. The US currently has no mandate to provide this and in any case the data collection specified is far from reciprocal. The IGA (Annex 1) describes 18 pages of due diligence requirements required to be performed by NZFI. There are none documented in the case of the US.

It seems the IRD are using this as a justification for the proposed legislation to support the IGA with the US that they intend to sign in the near future. However, if you read the report, you will see that the OECD admits there are significant changes required. Most importantly, “As most jurisdictions only tax residents not citizens, the multilateral model would only need to cover residents”and would require “the removal of identification requirements associated with citizenship”.

This is highly significant, because if the agreement only required reporting on ‘non-residents’ of the reporting country, this would not breach the privacy of, or discriminate against, the residents of the reporting country, which the US Model 1 IGA clearly does.

The other point here (missed by the IRD), is that the proposed OECD multilateral IGA approach would not be used to implement extra territorial laws (FATCA) under the ‘unilateral’ threat of sanctions (the 30% withholding extortion).

Therefore, the OECD proposals and the US version of the FATCA Model 1 IGA are not comparable or compatible in terms of their potential effect on New Zealand and New Zealanders. The impact of the proposed legislation cannot be analysed without detailed analysis of the “foreign account information-sharing agreements”that they implement.

(Note: This just means that if the U.S. is to be part of the multi-lateral OECD GATCA model, it would have to give up the FATCA IGA unilateralism and accept residency based taxation as an ‘international norms’.)

17. Benefits of IGA? Among the benefits cited for entering into an IGA (Page 3) are “Financial institutions….would not be required to carry out some of the more compliance-heavy aspects of FATCA”. How come? Aren’t they still required to put all the due diligence in place etc.? I don’t see how this is much of a benefit. (Note: The real benefit they fail to mention is the IGA removes the 30% penalty, and that is why the FFIs lobby for it, and KiwiSaver would be exempt from reporting.)

Submissions due February 5th.

I can’t find anything on the NZ parliament website that prevents submissions from overseas although I will check that next week when they re-open for business. I think it would be great if they received a few submissions from Canada or elsewhere so that they realize that other parts of the world are watching this. Unless I am mistaken NZ is the only country in the world that is currently seeking public input on their decision prior to signing an IGA to implement FATCA. Submissions from people like Jim Jatras would be particularly welcome …. so much better than just linking to their articles.

Those wishing to do submissions should focus on:

• Why is the signing of an IGA with the US not being subjected to public consultation, or the parliamentary process? This legislation simply enforces the terms of any IGA without any reference to its contents.

• NZ acknowledgement and participation in OECD initiatives to develop multi-lateral information sharing agreements are to be encouraged, subject to the usual cost/benefit analysis. However, the US FATCA IGA should not be implemented as it contains many provisions that are not contemplated in the OECD initiatives.

• The legislation forces NZFI to behave in a way that is inconsistent with the Bill of Rights, in particular freedom from discrimination and unreasonable search and seizure.

• No cost/benefit analysis for New Zealand has been performed for any particular course of action, nor has any impact analysis been done on the numbers of New Zealanders affected or the extent of harm that will be done to them. On that basis alone, the legislation should be rejected.

• The implementation of the IGA breaches New Zealand sovereignty.

Thank you.

Just Me Note:

Some might ask, what is happening with the New Zealand West Island of Australia? It has been more silent than a ‘Kiwi sleeping during the day time’, it would seem.

All I have seen recently is this note from an Australian CPA blogger on Tax Connections, until @Badger just posted this on the FATCA question thread which I admittedly have not yet read or analysed.

This article makes many valuable points re FATCA, the role of the OECD, the hypocrisy of the US re secrecy and lack of recprocity, etc. Well written and well argued. Makes points that could be useful to any anti-FATCA submission.

You have areas of focus mentioned above, but it would still be very helpful for those not familiar (like me) with the NZ situation and the pending legislation if you could boil down for our submissions what you feel are the most important three or four “whereases” (your last three points?) and the two or three specific requests to government, referring to the legislation, that follow the whereases.

For those submitting from overseas, I wouldn’t necessarily bother getting into the details of the legislation which is specific to New Zealand (unless you are a masochist!). I think the main point is to note that New Zealand needs to be made aware that this is a global issue and is being watched from other countries. They are trying to slip this legislation in under the covers hoping that very few people will notice or care.

Perhaps highlight some of the issues that are already happening in your country due to this (e.g. banks closing accounts) and that FATCA cannot be implemented without the help of foreign governments. Also you could mention any opposition in your country (e.g. recent media coverage in Canada). Any of the issues that people post about here so often, could be used.

Let them know it has been noticed and that you are strongly opposed to FATCA (with or without IGA)!!!

Heya are using WordPress for your site platform? I’m new to the blog world but I’m trying to get started and set up my
own. Do you need any html coding expertise to make your own blog?
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If this means there is even a suspicion that NZ bank account and FI information is to be provided automatically to other countries, there is going to be a massive withdrawal from NZ bonds, which have been highly popular abroad due to interest rates. Are NZ banks aware of the risks to their
business?

Reciprocal exchange from the IRS
83. In 2017, Inland Revenue will start receiving additional information from the IRS
concerning New Zealand persons, their IRD numbers, which will greatly assist in helping to
correctly identify those New Zealanders who might be avoiding their New Zealand tax
liabilities. This is one of the additional benefits that will accrue to New Zealand from
implementing a Model 1 IGA with the US.

84. From 2017, Inland Revenue will be able to access the IRS’s Data Exchange to retrieve
information on New Zealand persons who hold an account in the US although the exact
mechanics of this have not yet been released by the IRS.

85. The list of account holders will contain an IRD number that will be matched against
customer records within Inland Revenue’s computer database to identify any noncompliance
activities and apply sanctions as appropriate.

BENEFITS (p18)
98. The investment proposal has not been reduced to offset any overly optimistic monetary
benefits as none have been articulated.

p30 30% sanction is the justification for the FATCA project
Intangible Benefits and Costs
183. Due to the nature of the FATCA requirement, there are no direct monetary benefits that
could be realised through this project. The major beneficiaries of this project are the NZFIs
through the signing of the IGA, which simplifies their compliance processes and reduce the
risk of the potential 30% withholding for NZFIs.

p20
Benefits ($mNZD) Nil
Costs ($mNZD) – Deterministic $6.146

COSTS of delaying (p19)
108. There is a risk that the IRS may extend the implementation date and the project may
incur additional project costs as a result of the delay. The contingency cost includes funds
to accommodate a reasonable delay of three months.

p61 has a detailed cost breakdown (option 2 is the option decided)

Note (p20)
119. A status quo option not included in the long list as Inland Revenue does not currently
act as a conduit to receive information on behalf of financial institutions to be forwarded to
an overseas jurisdiction. (this might have to do with why the NPV did not address the don’t do option of getting 30% withholding)

Security
The option 2 shown was marked yellow with respect to security and was ranked 2nd of the 3 options in security, however later it says that its security meets FATCA IGA requirements.

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